Daily Forex Signals 12.04.2017
USD/JPY: Geopolitical tensions boosted demand for safe-haven assets
Macroeconomic overview: The JPY hit five-month highs against the USD on Wednesday, as simmering geopolitical tensions checked risk appetite and put the safe-haven Japanese currency in favour. Demand for JPY was boosted by fresh worries over France's presidential election, and possible U.S. military action against Syria and North Korea.
North Korean state media threatened a nuclear attack on the United States at any sign of American aggression on Tuesday, while U.S. President Donald Trump tweeted that Pyongyang was "looking for trouble" and the United States would "solve the problem" with or without China's help. Trump's administration also accused Russia of trying to shield Syria's government from blame for a deadly gas attack, as Secretary of State Rex Tillerson brought a Western message to Moscow condemning its support for President Bashar al-Assad.
In a new twist in the two-round election in France, Jean-Luc Melenchon, a far-left veteran who for most of the campaign has been dismissed as a distant no-hoper, has surged into the top four and lies just a few percentage points behind the leaders. Though some commentators see Melenchon's challenge as a blip that may fade, his rise has injected further uncertainty into the outcome of the election, in which centrist Emmanuel Macron has largely been seen as the favourite.
Higher risk aversion shifted investors to buy precious metals. Gold on Tuesday closed above the 200-day moving average for the first time this year after struggling to do so over the past few weeks.
Bank of Japan Governor Haruhiko Kuroda said on Wednesday yen declines may help the central bank achieve its 2% inflation target more quickly, even as geopolitical tensions lifted the Japanese currency to a five-month high against the dollar. Kuroda reiterated that the BOJ was not targeting exchange rates in guiding monetary policy and instead was pumping money into the economy to spur inflation. But he conceded the benefits a weak yen would have in accelerating inflation, such as by pushing up the cost of imports and thereby overall price growth. As the economy continues to recover and the base effect from last year's oil price fall dissipates, inflation will accelerate and heighten public's inflation expectations, he said.
The BOJ now projects core consumer inflation to hit 1.5% in the current fiscal year that ends in March 2018, and accelerate to 1.7% in fiscal 2018. We expect lower inflation only slightly exceeding 1% for both years.
Technical analysis: The USD/JPY broke below an important support at 110.10 yesterday. A close below this level suggests we may expect further fall, even to 200-dma, last at 108.72. 61.8% fibo of November-Decmber rally at 107.85 would be another bears’ target.
Short-term signal: Short for 109.20
Long-term outlook: Bearish
GBP/USD: British wage growth beat expectations, profit taken on GBP/USD long
Macroeconomic overview: Sterling hit its highest level in over a week against the dollar, after data on British wage growth beat expectations. Workers' total earnings including bonuses rose by an annual 2.3% in the three months to February, unchanged from the previous period. The market had expected wage growth of 2.2%.
But after taking into account inflation, total pay growth rose just 0.2% and excluding bonuses it inched up just 0.1% in the three months to February. Those were the weakest real-terms increases seen since mid-2014.
British households are grappling with sharp increases in prices, fuelled by rising energy costs and exacerbated by the pound's plunge that followed last year's vote to leave the European Union. Britain's official forecasters had expected pay growth in real-terms would evaporate later this year, but Wednesday's figures showed this is happening already.
Data released on Tuesday showed consumer price inflation stood at 2.3% in the 12 months to March and the BoE expects it to approach 2.7% by the end of this year. We think that inflation will be above 3% at the end of the year.
The unemployment rate in the period between December and February held steady at an almost 12-year low of 4.7%, in line with market expectations.
Technical analysis: The EUR/GBP bounced from the support of 1.2361 (50% fibo of March rise) and broke above 14-day exponential moving average yesterday. The pair continues its upward move after today’s data on wages. The next resistance level is 1.2615 high on March 27.
Short-term signal: We have taken profit on GBP/USD long at 1.2500. We think that further rise is possible in the coming days. As we already have opened some other USD-selling positions, we do not want to increase risk with another GBP/USD long.
Long-term outlook: Neutral. Given high political uncertainty around the UK, we think no position is justified from risk/reward perspective.
USD/CAD: BoC is likely to raise growth forecast today
Macroeconomic overview: The CAD closed unchanged against the USD on Tuesday, failing to lock in a fresh one-week high as risk aversion offset higher oil prices in rangebound trading ahead of a Bank of Canada interest rate decision.
Prices of oil, one of Canada's major exports, rose on reports that Saudi Arabia has told Organization of the Petroleum Exporting Countries' officials it wants to continue output cuts for an additional six months.
The Bank of Canada is widely expected to hold rates at 0.50% when it releases its interest rate decision and Monetary Policy Report on Wednesday. Still, the strength of recent domestic data has pointed to a pickup in Canada's economy and the central bank is likely to raise its first-quarter growth forecast.
Technical analysis: Fibos of last year’s 1.4689-1.2461 drop are holding an iron grip. 38.2% fibo at 1.3312 is a key level now. Breaking below this level could open the way to stronger drop and yesterday’s low at 1.3310 demonstrates how powerful this level has become.
Short-term signal: Out short-term strategy is to sell on upticks. We have placed sell offer at 1.3370.
Long-term outlook: We think that improving fundamentals of Canadian economy will support the loonie in the long term. An expected rise in oil prices could also help USD/CAD bears.
TRADING STRATEGIES SUMMARY:
FOREX - MAJOR PAIRS:
FOREX - MAJOR CROSSES:
How to read these tables?
1. Support/Resistance - three closest important support/resistance levels
2. Position/Trading Idea:
BUY/SELL - It means we are looking to open LONG/SHORT position at the Entry Price. If the order is filled we will set the suggested Target and Stop-loss level.
LONG/SHORT - It means we have already taken this position at the Entry Price and expect the rate to go up/down to the Target level.
3. Stop-Loss/Profit Locked In - Sometimes we move the stop-loss level above (in case of LONG) or below (in case of SHORT) the Entry price. This means that we have locked in profit on this position.
4. Risk Factor - green "*" means high level of confidence (low level of uncertainty), grey "**" means medium level of confidence, red "***" means low level of confidence (high level of uncertainty)
5. Position Size (forex)- position size suggested for a USD 10,000 trading account in mini lots. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size). You should always round the result down. For example, if the result was 2.671, your position size should be 2 mini lots. This would be a great tool for your risk management!
Position size (precious metals) - position size suggested for a USD 10,000 trading account in units. You can calculate your position size as follows: (your account size in USD / USD 10,000) * (our position size).
6. Profit/Loss on recently closed position (forex) - is the amount of pips we have earned/lost on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.
Profit/Loss on recently closed position (precious metals) - is profit/loss we have earned/lost per unit on recently closed position. The amount in USD is calculated on the assumption of suggested position size for USD 10,000 trading account.